15  ^-r 


— a*sr 


li9 

RAILROAD  TAXES 
IN  ILLINOIS 

Remarks  by  W.  W.  Baldwin,  Vice-President,   G.  B.  &  Q. 

R.  R.  Co.,  before  the  State  Board  of  Equalization, 

at  Springfield,  Tuesday,  October  14,  1913. 


Mr.  Chairman  and  Gentlemen  : 

I  appear  here  this  morning  in  behalf  of  the  Chicago, 
Burlington  &  Quiney  Railroad  Company,  which.,  I  believe, 
is  the  largest  taxpayer  in  this  State;  the  Company  is 
now  paying  in  taxes  in  Illinois  about  three-quarters  of  a 
million  dollars  annually. 

Some  of  you  who  are  acting  upon  this  Committee, 
and  others  who  are  members  of  your  Board,  are  serving 
in  this  capacity  for  the  first  time,  and  naturally  have  not 
the  same  knowledge  of  conditions,  nor  the  same  informa- 
tion, nor  the  same  experience  in  these  tax  matters,  as 
men  like  Mr.  Crandon,  Mr.  Tarbert  and  others,  who, 
year  after  year,  have  been  appearing  before  the  Board 
for  the  purpose  of  presenting  facts  and  arguments  rela- 
ting to  the  taxation  of  properties  which  they  represent. 

I  have  often  felt  that,  in  many  respects,  misrepre- 
sentation cuts  more  of  a  figure  towards  influencing  public 
•opinion  in  the  matter  of  the  taxation  of  railroads  than 
the  truth  does.  This  was  particularly  impressed  upon 
my  mind  at  the  protracted  hearings  before  the  Board 
some  seven  years  ago.  The  communication  just  read  to 
you  from  Attorney-General  Lucey,  tendering  his  services 
^on  behalf  of  the  State,  has  called  back  to  my  mind  what 
sj  took  place  in  1906  in  the  way  of  an  inquiry  by  the  public 
'  authorities  into  the  methods  of  the  Board  in  making  rail- 
road assessments,  and  whether  the  railroads  are,  in  fact, 
paying  a  fair  share  of  the  taxes.  His  Excellency,  now 
Governor,  was  in  1906,  if  I  recollect  right,  the  Mayor  of 


Chicago,  and  caused  to  be  instituted  a  strenuous  cam- 
paign for  increasing  assessments  and  taxes  upon  railroad 
property.  This  campaign  was  largely  conducted  in  the 
Chicago  newspapers,  and  Honorable  J.  Hamilton  Lewis, 
now  United  States  Senator,  who  was  at  that  time  Cor- 
poration Counsel  for  the  City,  was  directed  to  appear  in 
person  before  this  Board,  and  employ  special  counsel. 
He  retained  to  represent  the  City  before  the  Board,  two 
eminent  lawyers,  Judge  Fleming  and  Judge  Duffy. 
These  gentlemen  for  about  three  months  devoted  appar- 
ently almost  their  entire  time  to  studying  the  railroad 
assessment  and  criticizing  the  methods  of  the  Board,  and 
demanding  large  increases  in  the  valuation  of  the  rail- 
roads. It  is  my  recollection  that  they  filed  printed  argu- 
ments, and  made  oral  arguments,  and  largely  occupied 
the  time  and  attention  of  the  Board  from  the  2d  of  Octo- 
ber to  the  21st  of  December. 

Colonel  Lewis,  I  remember,  also  appeared  in  person, 
and  made  speeches  and  filed  printed  arguments.  These 
disclosed  very  clearly  that  Colonel  Lewis  did  not  know 
what  the  railroad  assessment  was,  nor  how  it  was  made. 
One  showing  that  he  made  on  the  subject  appeared  in 
his  claim,  based  upon  elaborate  calculations  of  capital 
stock  and  bonded  indebtedness,  that  the  C.  B.  &  Q.  prop- 
erty in  the  State  should  be  valued  for  taxation  at 
$52,000,000,  when  it  was  in  fact  at  that  very  time  being 
valued  at  more  than  $65,000,000.  He  also  claimed  that 
598  miles  of  the  Burlington  Road  in  this  State  were 
entirely  escaping  taxation,  a  pure  case  of  misinformation. 

The  most  effective  work  in  this  campaign  of  1906,  as 
influencing  public  opinion,  was  carried  on  in  the  Chicago 
newspapers,  with  exaggerated,  startling  headlines,  and 
tables  of  figures  furnished  by  Colonel  Lewis  and  his 
associates.    I  have  some  of  these  before  me  now. 

The  Record-Herald  announced  in  bold  type:  "  Bail- 
road  Property  Worth  $8,000,000,000  Has  Escaped  Levy," 
and  the  Tribune  gave  the  same  figures  of  enormous  loss 
to  the  State.  The  Daily  News  said  that  hundreds  of  mil- 
lions of  dollars  in  taxes  had  been  lost  to  Illinois,  because 
the  State  Board  had  failed  to  include  in  the  valuation  the 


debts  of  the  companies,  and  had  also  failed  to  include  the 
capital  stock,  as  if  there  could  be  any  property  of  a  rail- 
road company  that  was  not  represented  either  by  its 
capital  stock  or  its  indebtedness.  The  Chicago  Amer- 
ican, not  to  be  outdone,  asserted  in  the  heaviest  of  heavy 
type,  that  the  exact  figures  of  railroad  property  that  had 
escaped  taxation  were  $4,461,418,410,  and  it  repeated 
with  confidence  the  assertion  that  598  miles  of  the 
( !.  B.  &  Q.  had  been  entirely  overlooked,  forgotten,  as  it 
were,  and  therefore  not  taxed  at  all. 

The  Board  held  session  after  session,  at  which  these 
things  were  presented  to  them.  They  spread  in  full  upon 
their  official  record,  where  you  can  find  it  to-day,  the 
argument  of  Colonel  Lewis  to  which  I  refer,  while  declin- 
ing to  give  the  same  consideration  to  arguments  which 
were  made  in  reply. 

What  did  it  all  amount  to?  It  amounted  to  nothing, 
because  it  was  not  based  upon  anything  substantial.  It 
was  simply  a  lot  of  misinformation,  and  mischievous 
misinformation  at  that. 

Every  mile  of  the  Burlington  Hoad  was  being  prop- 
erly and  regularly  assessed  and  taxed,  and  not  one 
dollar  of  railroad  property  was  escaping  taxation. 

Such  incidents,  though  ostensibly  in  the  interest  of 
the  people,  do  no  good  to  anybody.  They  mislead  and 
corrupt  public  opinion,  instead  of  enlightening  it. 

As  I  said,  Colonel  Lewis'  first  memorial  was  placed 
before  the  Board  on  the  2d  of  October,  and  this  investiga- 
tion was  a  continuous  performance  from  that  time  until 
the  21st  day  of  December,  when,  with  only  one  dissenting 
vote,  the  Board  passed  the  following  resolution: 

"  The  Board  finds  that  the  real  and  personal  prop- 
erty of  the  State  has  been  valued  for  the  purpose  of 
assessment  for  the  year  1906  at  not  to  exceed  70  per  cent 
of  its  fair  cash  value.," 

That  resolution  was  passed  as  a  measure  of  equaliza- 
tion, the  attorneys  having  questioned  the  power  of  the 
Board  in  that  respect. 

All  this  occurred  seven  years  ago.    If  anything  had 


been  discovered  by  these  investigators,  or  by  anybody 
else,  that  was  worth  discovering;  if,  as  a  matter  of  fact, 
the  capital  stock  or  the  indebtedness  of  railroad  com- 
panies was  not  being  taken  into  account  by  the  Board  in 
making  their  assessments  of  railroad  property,  would 
not  this  outcry  have  continued?  Would  these  parties 
not  have  applied  to  the  courts  if  a  third  of  the  C.  B.  &  Q. 
mileage  was  going  free  of  taxation?  But  that  was  the 
last  of  the  agitation,  and  from  that  day  to  this  not  one 
of  them  has,  to  my  knowledge,  raised  his  voice  in  specific 
criticism  of  the  assessments  that  have  been  made  year 
by  year  by  your  predecessors. 

THE    ASSESSMENT    OF    CAPITAL   STOCK. 

The  Statute  which  governs  you  was  passed  in  1872  — 
forty-one  years  ago,  and  remains  substantially  un- 
changed. Its  provisions  have  been  construed  by  the 
Supreme  Court  of  the  State,  and  of  the  United  States, 
and  particularly  in  the  matter  of  assessing  capital  stock, 
and  there  is  no  excuse  for  misunderstanding  them. 

The  capital  stock  of  a  corporation  and  the  property 
of  a  corporation  are  the  same  thing  —  the  capital  stock 
represents  the  property.  To  assess  and  tax  all  the  prop- 
erty of  a  corporation  and  then  to  assess  and  tax  its 
capital  stock  also  would  be  double  taxation. 

But,  while  the  capital  stock  and  the  property  are  the 
same  thing,  it  does  not  follow  that  the  tangible  property 
is  all  the  property  of  a  corporation.  In  the  case  of  some 
companies,  like  a  telephone  company,  for  instance,  the 
instruments  and  wires  and  poles  may  be  a  small  part  of 
the  property  in  value.  The  main  value  may  consist  of 
patents,  contracts,  franchise  grants  in  city  streets,  etc. 
These  are  property,  but  they  are  not  tangible;  they  are 
intangible;  they  have  value  and  they  are  properly  sub- 
ject to  taxation  as  property.  They  are  represented  by 
the  capital  stock,  the  same  as  the  tangible  property. 

It  is  to  reach  this  intangible  property  that  the  law 
provides  for  an  assessment  upon  capital  stock,  and  in 
order  to  avoid  double  taxation,  prescribes  that  the  capital 
stock  shall  first  be  valued,  and  then  the  tangible  property, 


i 


and  if  the  former  exceeds  the  latter,  then  the  tangible 
property  assessment  shall  be  deducted  from  the  capital 
stock  assessment,  and  the  balance  shall  be  called  capital 
stock  assessment. 

In  making  a  valuation  of  capital  stock,  the  law,  as  I 
understand  it,  provides  for  consideration  of  market  quo- 
tations and  actual  values  of  the  shares  of  stock,  and  the 
amount  and  value  of  the  bonds  issued  by  the  company 
as  evidence. 

Now  this  view  of  the  law  was,  as  early  as  1873,  embod- 
ied by  your  Board  in  the  rules  which  it  adopted  for  its 
government  in  the  assessment  of  capital  stock,  which  are 
to-day  in  force,  and  have  always  been  followed,  so  far 
as  railroad  property  is  concerned. 

DISTINCTION    BETWEEN    FOREIGN    AND   DOMESTIC 
CORPORATIONS. 

In  applying  their  rules  during  the  very  first  year,  the 
Board  encountered  a  serious  practical  difficulty.  They 
found  that  a  considerable  part  of  the  railroad  property 
in  Illinois  was  owned  by  foreign  corporations  whose 
capital  stock  they  had  no  power  to  assess.  These  roads, 
of  which  the  Chicago,  Milwaukee  &  St.  Paul  is  a  fair 
illustration,  run  side  by  side  with  domestic  roads,  such 
as  the  Burlington  and  the  North  Western  —  they  cost 
the  same  to  build  and  equip  and  operate;  they  charge 
the  same  rates,  and  earn  substantially  the  same  and  are 
to  all  intents  and  purposes  of  equal  value.  To  assess  the 
property  of  a  company  organized  under  your  own  laws 
at  twice  as  much  as  the  property  of  a  foreign  corporation 
having  the  same  intrinsic  value,  and  permitted  to  enter 
the  State  by  the  grace  of  its  laws,  simply  because  a 
capital  stock  assessment  could  not  legally  be  made  against 
the  foreign  corporation,  was  a  manifest  injustice. 

At  first,  this  was,  in  a  measure,  obviated  by  a  valua- 
tion upon  the  tangible  property  of  the  foreign  company 
much  higher  than  the  tangible  valuation  of  the  domestic 
roads.  This  was  done  for  four  years.  In  1876,  the  tangi- 
ble property  of  the  Burlington  Road  was  valued  at  $5,390 
per  mile,  and  a  capital  stock  assessment  made  against  it 


of  $5,400  per  mile,  while  the  Milwaukee  tangible  assess- 
ment was  $9,400  per  mile;  that  is,  the  property  of  the 
two  roads  was  valued  at  virtually  the  same,  in  one  case 
it  being  called  tangible  and  in  the  other  half  tangible  and 
half  capital  stock.  What  was  the  sense  of  that?  It  was 
perfectly  evident  that  this  inequality  in  the  tangible 
assessment  as  between  foreign  and  domestic  companies 
could  not  continue  indefinitely,  and,  acting  upon  the  best 
legal  advice  obtainable,  the  Board  finally  decided  in  1877, 
to  thereafter  include  all  elements  of  value  in  their 
"tangible  property  "  assessment.  In  pursuance  of  this 
policy,  they  adopted  the  rule  set  forth  in  this  report  of 
their  Eailroad  Committee,  dated  October  2,  1877 : 

To  the  State  Board  of  Equalization: 

Gentlemen, —  Your  Committee  on  Assessment  of  Railroad 
Property  beg  leave  to  report  that  they  have  carefully  examined 
the  schedules  and  statements  as  furnished  by  the  various  rail- 
road companies,  and  by  the  Auditor  of  Public  Accounts,  and 
have  endeavored,  as  far  as  possible,  to  assess  at  a  just  and  equi- 
table value  the  property  of  railroads  embraced  in  said  schedules; 
and  in  order  to  equalize  the  same  with  the  other  assessed  prop- 
erty of  the  State,  have  made  the  assessment  at  50  per  cent  of  the 
cash  value  thereof. 

The  Committee  find  that  a  fair  and  equitable  assessment  of 
the  "tangible  property"  of  the  foregoing  railroads  leaves  noth- 
ing to  be  assessed  as  ' '  capital  stock. ' ' 

The  tabular  statement  hereto  attached  shows  the  result  of  our 

Respectfully  submitted, 

Ed.  B.  Warner, 
T.  J.  Hale, 
C.  C.  Campbell, 
John  II.  Anthony, 
Amos  Savage, 
Committee  on  Assessment  of  Railroad  Property. 

October  2,  1877. 
Board  adjourned. 

THE    BOARD    METHOD. 

That  was  thirty-six  years  ago,  and  the  practice 
then  established  has  ever  since  been  followed.  Valua- 
tions of  railroad  property  are  made  substantially  the 
same  against  foreign  and  domestic  corporations.  The 
capital  stock  is  assessed  because  every  element  of  value 


is  considered  by  the  Board.  The  franchise,  or  earning 
power,  that  is,  the  ability  to  employ  the  property  with 
profit,  is  taken  into  consideration,  as  well  as  the  market 
quotations,  and  the  actual  value  of  the  stocks  and  bonds. 
These,  and  all  other  elements,  are  considered  by  the 
Board  honestly  and  intelligently,  as  I  understand  the 
matter,  whether  the  details  of  their  examination  are  laid 
before  an  inquiring  world  or  not. 

VALUATION    AND    EQUALIZATION. 

You  have,  gentlemen,  two  duties,  both  plainly  pre- 
scribed and  enjoined  upon  you  by  law  —  the  duty  of 
ascertaining  the  value  of  every  mile  of  railroad  in  this 
State,  and  the  duty  of  equalizing  that  value  with  the 
valuations  that  are  made  by  local  assessors  generally 
upon  the  real  and  personal  property  in  their  assessment 
districts.    One  duty  is  as  important  as  the  other. 

You  have  nothing  to  do  with  tax  results,  that  is,  with 
the  amount  of  taxes  per  mile  upon  any  railroad. 

The  Panhandle  Road  pays  $10,448  per  mile  in  taxes 
in  this  State  every  year;  the  Fort  Wayne  Road  pays 
$4,523;  the  Lake  Shore  pays  $6,832  per  mile,  and  the 
Milwaukee  pays  $535  per  mile.  The  reason  for  such  dif- 
ference is  easily  explained.  The  property  of  the  Pan- 
handle Company  and  the  others  named,  is  really  terminal 
property,  carrying  high  valuations,  and  largely  subject 
to  the  high  tax  rates  in  Cook  County,  while  the  Milwaukee 
Road  is  largely  in  the  country  districts,  with  some  cheap 
and  unprofitable  branches. 

The  results  of  taxation  depend  upon  the  rates,  no 
less  than  upon  the  valuations.  I  think  that  the  tax  rate 
upon  all  the  property  of  the  C.  B.  &  Q.  Road  that  is 
located  in  the  Township  of  Cicero  in  Cook  County,  is 
110  mills,  while  the  rates  upon  our  property  in  some 
country  districts  do  not  exceed  20  mills.  You  will  appre- 
ciate the  necessity  of  keeping  this  in  mind  when  you 
compare  taxes  per  mile  in  different  States. 

THE    PRINCIPLES    OF    RAILROAD    VALUATION. 

Your  first  duty  is  to  find  the  value  of  the  railroads ; 
not    the   value   for   ratemaking,   with   which   you    have 


nothing  to  do,  but  the  value  for  taxation,  with  which  you 
have  everything  to  do.  The  two  purposes  are  distin  t. 
and  are  not  governed  by  the  same  principles.  You  must 
have  a  basis,  a  principle,  a  theory,  to  start  from,  when 
you  begin  to  make  these  valuations;  you  have  got  to 
have  something;  it  is  not  a  matter  of  guesswork. 

The  theories  or  principles  which  have  been  applied 
in  the  search  for  the  best  answer  to  the  question.  "What 
is  a  railroad  worth  ?"  are  many  and  various.  One  theory 
is  that,  for  taxation  purposes,  any  given  railroad  ought 
to  be  worth  what  it  cost  to  build  it.  How  can  you,  as 
assessors,  at  this  time  apply  that  theory  to  the  railroad 
property  in  Illinois?  !><>  you  know  what  it  cost  ?  Have 
you  a  particle  of  evidence  before  you  to  show  what  any 
mile  of  the  12,000  miles  in  this  State  actually  cost?  Sonic 
miles  have  undoubtedly  eosl  over  $100,000  to  build,  and 
other  miles  not  over  $1.">.(ii)0. 

Not  very  long  ago  the  Burlington  Company  bought 
the  Jacksonville  &  St.  Lords  Road  for  $9,500  per  mile, 
and  you  are  new  valuing  the  Baxne  road  for  taxation  at 
$26,124  per  mile.  We  do  not  know  what  that  road  cost  to 
build  originally,  and  there  are  too  records,  thai  I  know  of, 
from  which  to  find  <>ut. 

What  did  the  Wabash  Road  in  Illinois  <-"-t  .'  It  IS  in 
the  hands  of  receivers,  because,  regardless  of  what  it 
cost,  it  could  not  cam  enough  to  pay  the  expenses  of 
operating  it,  and  interesl  upon  it-  debts. 

Suppose  you  paid  $1,000  for  a  good  horse,  and  the 
horse  should  fall  Bick;  what  would  your  sick  horse  be 
valued  at  for  tax  assessment;  would  what  ho  eosl  cut 
any  figure  in  his  valuation.'     Railroads  gel  sick  and  go 

into    the   custody   of   the   courts    and    an-    sold    under    the 

hammer,  as  wa-  the  case  of  the  Jacksonville  cV  St.  Louis; 
it  was  on  the  bargain-counter,  ;i-  the  Wabash  may  be  one 
of  these  days,  and  many  other  roads,  and  what  they  may 

have  cost  will  have  very  little  to  do  with  the  price  they 
bring. 

Another  theory  sometimes  considered,  lb  not  what 
the  railroad  cost,  originally,  hut  what  it  could  be  built 
for  now  —  its  replacement  cost.     Sou  are  necessarily  as 

8 


much  in  the  dark  upon  that  question  as  you  are  upon  the 
cost  question.  As  applied  to  a  road  like  the  Wabash,  or 
the  Jacksonville  &  St.  Louis,  that  principle  would  iu 
taxation  be  a  worse  guide  than  the  cost  theory,  because 
the  figures  of  reproduction  now  would  probably  much 
exceed  the  original  cost  figures,  while  the  roads  them- 
selves can  not,  at  present  rates,  and  with  their  present 
volume  of  business,  be  made  to  earn,  with  the  best  of 
management,  a  return  upon  either  basis. 

No  physical  valuation  of  the  roads  has  yet  been  under- 
taken in  Illinois,  although  that  is  now  in  progress,  under 
a  law  of  Congress,  and  may,  in  the  course  of  future  years, 
furnish  some  material  for  showing  the  cost  of  reproduc- 
tion of  the  railroads  in  this  State. 

I  spoke  of  the  question  of  value,  as  determined  from 
earnings.  It  is  sometimes  said  that  railroads  should  be 
worth  for  tax  valuation,  such  a  figure  as  it  appears  they 
may  be  able  to  earn,  regardless  of  what  they  cost  orig- 
inally, and  regardless  of  what  they  could  be  replaced  for 
at  the  present  time. 

Upon  that  principle  the  branch  lines  of  the  C.  B.  &  Q. 
would  hardly  be  taxed  at  all,  because  they  earn  nothing 
above  expenses  and  taxes,  and  the  same  is  true  of  such 
roads  as  the  Toledo,  Peoria  &  Western  and  practically 
all  the  smaller  independent  lines,  and  is  largely  true  at 
this  time,  I  suppose,  of  the  Wabash,  and  other  roads  that 
are  similarly  situated  financially.  But  vou  value  them 
for  taxation,  and  you  tax  them. 

This  test  of  value,  based  upon  earnings,  or  income, 
can  not  be  applied  to  vacant  land,  and  is  not  applied  to 
improved  lands,  nor  to  houses  occupied  for  residence, 
nor  to  live  stock,  nor  to  factories,  nor  in  fact  directly  to 
any  other  class  of  property.  Why  shall  we  make  it  the 
sole  test  of  the  value  of  a  railroad  ? 

I  admit  that  it  has  value  for  purposes  of  comparison. 

For  instance,  one  question  you  will  be  asking  your- 
selves is  this:  Was  last  year's  valuation  of  the  railroads 
in  Illinois  high  enough,  considering  what  they  were 
earning? 

9 


Before  you  answer  that  question,  you  must  decide 
what  income  is  proper  to  be  accepted,  as  the  basis  for  the 
estimate;  what  rate  of  return  is  properly  to  be  allowed, 
considering  the  nature  of  railroad  property,  and  other 
evidence  necessary  to  the  application  of  any  theory  of 
valuation  based  upon  the  capitalization  of  net  income. 

The  State  Board  in  Iowa  recently,  and  after  lorg 
deliberation,  adopted  a  method  for  determining  whether 
their  valuation  had  been  too  high  or  too  low  for  the 
previous  year;  they  said  they  would  take  the  net  earn- 
ings, and,  subtracting  from  that  figure  the  taxes,  would 
capitalize  the  remainder  at  7  per  cent.  Why  they  named 
7  per  cent  as  the  proper  figure  is  perhaps  as  well  stated 
as  anywhere  in  the  evidence  of  Governor  Cummins,  of 
Iowa,  now  Senator,  who  is,  I  suppose,  in  the  very  fore- 
front of  progressiveism : 

GOVERNOR  CUMMINS'  OPINION  AS  TO  THE  PROPER 
RATE  FOR  CAPITALIZATION. 

In  the  hearing  before  the  Committee  on  Interstate  Commerce, 
held  on  Thursday,  May  11,  1905,  Governor  Cummins  was  a  wit- 
ness and  was  asked  by  Senator  Newlands  the  following  question : 

"Now,  as  to  the  percentage  that  should  be  paid  upon  the 
capitalization,  what  do  you  think  would  be  a  fair  percentage  to 
allow?" 

Gov.  Cummins:  "I  think  that,  understanding  and  recogniz- 
ing the  uncertainty  of  revenue,  a  railway  company  should  be 
permitted  to  earn  at  least  seven  per  cent  as  conditions  are  now. 
Assuming  that  five  per  cent,  we  will  say,  is  a  fair  interest  upon 
undoubted  securities,  I  believe  that  in  order  to  guard  against  the 
uncertainties  of  railway  operation  there  should  be  an  opportunity 
to  earn  seven  per  cent. ' ' 

Sen.  Doliver  :  ' '  Do  you  mean  an  opportunity  to  distribute 
that  as  a  dividend  ? ' ' 

Gov.  Cummins  :  "  To  do  anything  they  like  with  it.  .  .  . 
If  we  had  a  completed  system  of  railway,  and  all  that  remained 
was  to  operate  the  property,  I  would  regard  a  much  less  per  cent 
than  seven  as  a  fair  return  upon  the  investment;  but  we  are  in 
the  midst  of  development.  We  must  invite  capital  into  these 
enterprises  in  the  future.  They  are  not  as  certain  in  their  returns 
as  fixed  investments  and,  therefore,  we  must  give  the  investors 
an  opportunity  to  make  more  than  they  can  get  out  of  their 
money  by  loaning  it  on  mortgages  and  on  investments  of  that 
character. ' ' 

10 


If  you  should  ask  me  what  last  year's  valuation  of 
the  railroads  of  Illinois  would  figure  out  to  be,  in  accord- 
ance with  this  formula  or  test,  used  by  the  Iowa  Board, 
this  would  be  the  result:  the  printed  report  of  your 
Railway  and  Warehouse  Commission  at  page  99,  gives 
the  average  net  earnings  of  the  railroads  in  this  State 
as  $4,079  per  mile,  and  on  page  158  states  that  the  taxes 
paid  by  the  same  roads  amounted  to  $7,134,330,  or  at  the 
rate  of  $565  per  mile.  Deducting  taxes  from  net  earn- 
ings leaves  $3,514  per  mile,  which  is  a  return  of  7  per 
cent  upon  $50,200  per  mile. 

The  Board  last  year,  as  I  have  shown  you,  in  the 
resolution  which  they  adopted,  equalized  their  valuation 
at  70  per  cent,  and  70  per  cent  of  $50,200  is  $35,140, 
which  upon  this  principle  should  have  been  the  average 
valuation  per  mile  of  Illinois  railroads.  But  last  year's 
valuation  of  Illinois  railroads  was  in  fact  $46,896  per 
mile,  or  $11,756  more  than  could  have  been  found  by 
capitalizing  the  net  earnings,  less  the  taxes,  at  7  per 
cent  —  that  is,  the  valuation  that  was  made  was  one-third 
higher  than  it  should  have  been,  measured  by  the  test 
that  I  am  now  calling  to  your  attention,  viz. :  that  the 
railroads  are  worth  for  taxation  purposes  what  they  can 
earn  a  fair  return  upon. 

But  there  is  still  another  theory  upon  which  some 
people  would  value  railroads  for  taxation;  they  say  that 
a  horse  or  a  watch,  or  a  farm,  or  an  automobile,  is  worth 
what  it  will  sell  for,  and  why  not  a  railroad?  They  say 
there  is  nothing  to  a  railroad  except  its  capital  stock, 
subject  to  its  bonds,  and  that  the  way  to  value  it  is  to  find 
out  what  its  stock  is  selling  for  in  the  market,  and  add  to 
that  its  indebtedness,  and  there  vou  are. 

You  can  not  very  well  accept  and  act  upon  any 
theory  that  you  can  not  apply  to  all  the  roads  alike.  How 
can  you  value  the  Wabash  Road,  or  the  Toledo,  Peoria 
&  Western  Boad,  or  the  Bock  Island  Road  for  that  mat- 
ter, at  this  time,  upon  that  theory? 

The  common  stock  of  the  Rock  Island  Road  is  quoted 
at  14  and  the  preferred  stock  is  quoted  at  21.  It  is  a 
fact  that  this  theory  breaks  down  in  practice,  because 

11 


there  is  no  market  for  railroads,  in  the  same  sense  that 
there  is  a  market  for  farms,  or  horses,  or  automobiles. 

As  applied  to  the  property  in  this  State  of  the  Penn- 
sylvania Road,  or  the  New  York  Central  Lines,  it  would 
be  worthless,  as  the  slightest  reflection  will  show  you, 
but,  like  the  net  income  theory,  it  may  furnish  a  basis  for 
comparison,  and  for  determining  whether  last  year's 
valuation  of  railroads  was  as  high  as  it  ought  to  have 
been. 

Suppose  that  you  test  this  stock  and  bond  theory  upon 
one  of  the  best  and  strongest  roads  in  the  State,  the 
Chicago,  Burlington  »x*  Quincy,  admitting  that  it  will  not 
work  as  to  valuation  of  weaker  roads. 

The  capital  stock  of  the  C.  B.  &  Q.  is  $110,839,0(10, 
and  you  have  before  you  our  sworn  report  thai  the  pro- 
portionate share  of  the  capital  stock  in  the  State  of 
Illinois  is  $21,089,244. 

You  have  ool  Been  a  market  quotation  of  C.  B.  &  Q. 
stock  for  years;  it  is  practically  all  represented  by  what 
are  called  Joint  Four  Per  Cenl  Bonds,  issued  on  the 
basis  of  $2,000  in  bonds  for  each  $1,000  of  O.  B.  &  Q. 
stock.  These  bonds  are  quoted  in  the  market  at  about 
95,  upon  which  basis  the  Burlington  Stock  could  be  said 
to  have  a  value  of  L90.  II'  you  compare  thai  with  127, 
which  is  the  quotation  for  the  Stock  of  the  North  Western, 
ami  with  133  for  the  Preferred  Stock  of  the  St.  Paul,  or 
with  21,  which  is  the  quotation  for  Rock  Island  Preferred, 
you  will  see  that  toy  figure  of  L90  is  fictitiously  high. 

It  is  really  a  bond  quotation,  and  not  a  Btock  quota- 
tion. Bui  even  at  this  figure,  the  Stock  value  of  the  Bur- 
lington Road  in  Illinois  would  he  $40,069,563. 

The  debt  in  Illinois,  at  par,  as  we  report  it,  is  $34,- 
830,77.");     ami    par    for   the   debt    is   also   excessive.      But, 

adding  the  two  together  they  amount  to  $74,900,336,  while 
the  tax  valuation  of  our  property  in  Illinois  last  year, 
without  any  equalization  whatever,  was  over  $74,000,000; 
so  that  upon  an  equalizing  hasis  of  even  70  per  cent, 
our  fair  valuation  would  have  been  $51,430,000,  that  is, 
just  about  what  Colonel  Lewis  claimed  in  his  memorial 
that  it  ought  to  be. 

12 


In  other  words,  if  you  take  this  stock  and  bond 
theory,  and  apply  it  to  the  G.  B.  &  Q.  property  in  this 
state,  as  I  have  indicated,  you  will  reduce  our  last  year's 
valuation,  that  is,  our  full  value,  more  than  $20,000,000. 

I  claim  that  you  should  equalize  upon  a  basis  of  50  per 
cent,  instead  of  70,  and  I  will  give  you  my  reasons,  but, 
if  I  have  not  fairly  considered,  and  fairly  discussed,  these 
various  theeories  of  the  valuation  of  railroads,  it  is  up 
to  some  one  to  show  wherein  I  have  misstated  either  a 
figure  or  a  principle. 

C.   B.   &   Q.   BRANCHES  IN  ILLINOIS. 

In  these  figures  for  the  C.  B.  &  Q.  Road  I  have  treated 
the  line  in  this  state  as  an  entirety,  for  the  stock  and  the 
bonds  cover  all  the  property. 

But  there  is  another  side  to  the  question,  which  it  is 
only  fair  that  you  should  take  into  consideration,  and 
that  is  this : 

About  one-half  of  the  C.  B.  &  Q.  Railroad  in  Illinois  is 
not  productive  property.  I  hold  in  my  hand  an  official 
statement  showing  the  entire  operating  revenue  and  the 
expense  of  800  miles  of  our  branch  lines  in  this  State, 
which  is  open  to  your  careful  inspection.  This  statement 
shows  that  the  net  earnings  of  those  roads  for  the  year 
ending  June  30,  1913  —  a  good  year  —  a  prosperous  year 
—  were  $575  per  mile,  which  is  just  about  the  taxes  per 
mile  paid  on  the  same  roads  —  a  little  less,  I  think,  than 
the  taxes.  That  is,  half  the  road  in  this  State,  in  good 
times,  is  earning  just  about  enough  to  pay  operating 
expenses  and  taxes,  and  at  that  we  are  better  off  than 
many  others. 

What  makes  the  value  of  the  C.  B.  &  Q.  I  It  is  the 
through  business;  the  train  loads  of  grain  from  Neb- 
raska and  Minnesota,  and  the  train  loads  of  live  stock 
from  the  far  west;  and  the  train  loads  of  passengers 
between  Chicago  and  Denver,  and  between  Chicago  and 
St.  Paul,  and  between  St.  Louis  and  the  West;  it  is  not 
the  business  between  stations  in  Illinois. 

Answer  me  this  question:  What  do  you  regard  as 
your  duty  in  the  taxation  of  a  railroad  that  does  not  pay 

13 


operating  expenses'?  That  road  is  a  public  highway. 
The  State  fixes  its  passenger  rates  at  2  cents  per  mile, 
when,  considering  the  train  service  required,  and  other 
expenditures,  it  ought  to  be  permitted  to  charge  4  cents. 
The  State  prescribes  what  it  can  charge  for  carrying 
freight,  and  it  may  not  be  long  before  the  State  will  be 
prescribing  what  wages  that  company  shall  pay  to  its 
employees. 

You  can  shut  up  your  store,  if  it  does  not  pay,  and 
move  away,  or  go  into  some  other  business ;  you  can  close 
your  bank,  if  it  does  not  pay.  But  a  railroad  can  not  move 
away,  and  it  can  not  discontinue  its  trains.  It  is  in  effect 
a  public  agency,  owned  by  private  capital,  but  compelled 
to  do  business  upon  terms  fixed  by  the  State,  but  without 
the  guaranty  of  one  dollar  of  return  upon  the  investment. 

This  class  of  poor  railroads  in  your  State  are  per- 
forming a  public  service  without  pay.  Why  should  you 
tax  such  railroads  at  all,  any  more  than  you  tax  a  school 
house  or  a  church? 

But  some  one  may  say  that  if  the  Board  can  not  safely 
adopt  the  cost  theory,  nor  the  replacement-value  theory, 
nor  the  capitalization  of  net  earnings  less  taxes,  nor  the 
selling  value,  or  stock  and  bond  theory,  do  you  mean  that 
there  is  no  sound  theory  or  principle  that  can  be  relied 
upon!  I  do  not  mean  anything  of  the  sort.  Instead  of 
relying  upon  any  one  of  these  methods  to  the  exclusion 
of  the  others,  I  would  rely  upon  them  all. 

I  would  not  fail  to  make  a  valuation  of  a  railroad 
because  its  stock  sells  for  little  or  nothing  in  the  market, 
nor  omit  another  road  from  taxation  because  I  could  not 
find  out  what  it  cost.  Its  income,  its  sale  value,  what 
another  road  like  it  could  be  built  for,  and  what  it  prob- 
ably cost  originally,  are  all  of  them  fair  and  legitimate 
and,  it  seems  to  me,  necessary  elements  that  should  be 
taken  into  consideration  in  the  valuation  of  every  rail- 
road. 

What  I  insist  upon  and  have  tried  to  make  plain  is 
this:  that  by  the  use  and  application  of  these  tests,  all 
of  them,  or  any  of  them,  it  appears  that  the  present  tax 
assessment  of  the  C.  B.  &  Q.  Railroad  and  the  total 

14 


assessment  of  all  the  roads  in  this  State,  in  comparison 
with  the  assessment  of  other  property,  is  now  higher  than 
the  facts  will  justify,  and  that  none  of  these  tests,  hon- 
estly applied,  will  show  that  last  year's  valuations  should 
be  raised. 

TAXES    AND    DIVIDENDS. 

Are  the  taxes  upon  Illinois  railroads,  based  upon  the 
valuations  that  were  made  last  year  bv  your  Board,  as 
high  as  they  should  be  ?  Do  you  happen  to  know  how  the 
taxes  paid  in  Illinois  by  the  railroads  compare  with  the 
dividends  they  paid  to  their  stockholders  ? 

The  property  owned  by  all  the  companies  operating 
railroads  in  this  State  is  valued,  I  believe,  at  more  than 
$600,000,000  —  full  value.  I  hold  in  my  hand  a  table 
which  I  asked  to  have  prepared,  showing  every  mile  of 
each  Illinois  road,  and  the  dividends  they  pay  per  mile, 
and  therefore  the  dividends  paid  in  this  State,  based  upon 
the  mileage  in  this  State. 

That  statement  shows  that  on  all  the  railroads  in  Illi- 
nois that  paid  any  dividends,  the  aggregate  sum  was 
$7,124,144,  while  the  taxes  paid  by  railroads  amounted 
to  $7,134,330.  That  is,  the  State  charged  them  more  for 
the  privilege  of  doing  business  than  the  total  amount 
received  in  dividends  by  the  owners  of  the  property. 

Chicago  is  now  urgently  asking  that  a  certain  num- 
ber of  railroads,  of  which  the  Burlington  is  one,  shall 
invest  $30,000,000  in  a  new  Union  Station. 

The  people  of  Aurora  would  like  to  have  the  C.  B.  & 
Q.  invest  a  million  dollars  in  a  new  station,  and  in  track 
elevation,  and  other  improvements  in  that  city. 

If  taxation  goes  on  increasing  at  the  rapid  rate  which 
has  characterized  the  past  few  years,  what  encourage- 
ment is  there  for  further  investment  in  Illinois  railroad 
properties  1 

THE    SIDE-TRACK    VALUATIONS. 

Here  is  a  statement  from  our  engineering  department 
of  the  cost  of  a  mile  of  side  track,  using  75-pound  rails 
and  white  oak  ties  : 


15 


Office  of  Engineer,  Illinois  District: 

Estimate  of  cost  of  one  mile  of  side  track,  using  S.  H.  75- 
pound  rail  and  white  oak  ties : 

113.1  tons  S.  H.  75-pound  rail,  $20.51 $2,320 

377  pairs  S.  H.  75-pound  angle  bars,  $0.60 226 

2,262  %-inch  bolts,  $3.350 76 

2,640  White  oak  ties,  $0.61 .  1,610 

30  kegs  spikes,  $3.64 109 

1,515  cubic  yards  ballast,  $0.25 379 

1  mile  track  laying  and  surfacing 750 

$5,470 
Add  10  per  cent  for  engineering  and  contingencies .      547 

$6,017 
Your  Board  last  year  —  the  much-criticized  and  much- 
abused  State  Board  —  valued  these  side  tracks  at  $12,000 
per  mile,  or  twice  what  it  costs  us  to  build  them.  This 
very  seriously  and  unjustly  added  to  our  last  year's  val- 
uation. We  had  845  miles  of  side  track,  which,  at  $6,000 
per  mile,  would  be  $5,070,000,  while  the  same  tracks  were 
valued  by  the  Board  at  $9,982,000  —  or  nearly  double  the 
valuation  that  was  right  or  just. 

What  was  the  excuse  given?  It  was  to  help  Chicago 
out,  and  other  cities  which  contain  the  bulk  of  the  side 
tracks.  Did  that  indicate  that  the  Board  was  overly 
friendly  to  railroads?  We  protest  that  any  such  valua- 
tion as  $12,000  per  mile  for  side  tracks  is  unreasonable. 

EQUALIZATION. 

As  I  have  said,  the  duty  to  equalize  is  as  plain  and 
imperative  under  the  law  as  the  duty  to  valuate.  It  is  a 
duty  which  no  Board  that  has  existed  in  forty  years  has 
entirely  evaded;  every  Board  has  sought  to  apply  some 
percentage  in  the  performance  of  this  duty. 

No  principle  is  more  thoroughly  established  in  the 
courts  than  this  duty  of  equalization,  so  that,  if  your 
Board  should  refuse  to  comply  with  its  requirements,  we 
are  not  entirely  helpless.    The  courts  are  still  open. 

This  feature  is  so  important,  and  affects  the  valua- 
tions so  fundamentally  that  you  will  have  to  let  me  read 
to  you  some  extracts  from  the  decisions  of  the  Supreme 
Court  of  Illinois,  among  them  one  known  as  the  leading 
case  on  the  subject,  and  reported  in  44  Illinois,  page  229 : 

16 


The  court  says : 

The  great  central  and  dominant  idea,  in  the  constitution  is 
uniformity  of  taxation ;  and  no  power  exists  or  should  exist  in 
any  authority  to  go  counter  to  this  command  of  the  fundamental 
law. 

The  question  before  this  court  is  this  :  ' '  Can  a  railroad  com- 
pany, by  any  action  of  the  authorities,  be  required  to  pay  more 
than  its  fair  share  of  taxes,  as  compared  with  those  paid  by 
individuals?  Does  the  power  exist  anywhere  to  destroy  the 
cardinal  principle  of  uniformity  of  taxation  insisted  upon  by 
the  constitution  ?  If  the  officers  neglect  to  act  up  to  the  require- 
ments of  the  law,  is  that  any  reason  why  A  should  pay  40  per  cent 
more  taxes,  in  proportion  to  the  value,  than  B  ? " 

The  rule  adopted  by  the  assessors  has  grown  into  a  custom, 
and  has  been  tacitly  sanctioned  for  a  long  course  of  years,  and  it 
is  now  too  late  to  challenge  it,  namely,  that  property  is  assessed 
at  one-third  of  its  actual  value.  Would  not  the  sense  of  justice 
of  every  man  be  outraged  by  allowing  this  or  any  other  depre- 
ciation to  one  class  of  people  and  demanding  of  another  a  higher 
tax  on  a  similar  article  of  the  same  actual  value?  The  proposi- 
tion can  not  commend  itself  to  the  favor  of  any  just  man  and 
can  receive  no  countenance  in  the  court  of  justice. 

It  is  an  admitted  fact  that  the  property  of  no  one  owner  in 
the  county  has  been  taxed  at  its  real  value,  and  that  the  percent- 
age added  by  the  authorities  to  the  valuation  of  the  property 
of  appellees  imposed  upon  them  a  greater  proportionate  burden 
than  the  law  requires  them  to  bear.  We  are  of  this  opinion,  and 
therefore  consider  the  action  of  the  board  an  injustice  and  in 
direct  opposition  to  the  constitution.  The  great  feature  of  uni- 
formity has  been  disregarded  by  the  board  and  appellees  vic- 
timized. 

Similar  decisions  in  many  courts  authorize  and  require 
the  State  Board  to  take  cognizance  of  the  prevailing  ratio 
of  assessment  to  actual  value  as  practiced  by  the  asses- 
sors regarding  other  property  and  to  take  such  ratio  as 
their  guide  in  assessing  railroad  property. 

JUDGE  TAFT'S  OPINION  (1898). 

The  railroad  complains  that  the  undervaluation  of  real  and 
personal  property  is  intentional  and  systematic  throughout  the 
State,  and  in  accordance  with  a  recognized  custom ;  if  compared 
with  the  assessment  at  full  value  of  railroad  property,  it  makes 
a  system  of  taxation  which  imposes  an  unjust  share  of  the  cost 
of  government,  in  violation  of  the  Constitution  of  Tennessee, 
which  enjoins  uniformity  of  taxation,  according  to  value,  on  all 
property.     This  makes  a  case  where  taxpayers  owning  one  kind 

17 


of  property  are  taxed  at  a  higher  rate  than  the  owners  of  similar 
property.  This  is  a  flagrant  violation  of  the  Constitution  for- 
l-idding  discrimination  in  taxation  between  different  species  of 
property. 

Any  method  of  assessing  one  class  of  property  can  not  be  said 
to  be  constitutional  without  having  regard  to  that  pursued  with 
other  species;  for  the  essence  of  the  Constitution  is  uniformity, 
and  uniformity  can  not  be  made  to  exist  without  due  regard  to 
the  methods  of  assessing  all  classes  of  property. 

Judge  Taft  referred  to  the  decision  of  the  Supreme  Court 
of  the  I'nitcd  States  in  Cummins  vs.  Bank,  101  U.  S.,  page  153, 
in  which  an  injunction  was  granted  on  the  ground  that  equity 
will  relieve  a  property  owner  from  the  unequal  burden  placed 
on  him  on  more  than  one-third  of  the  assessment  against  his 
property,  although  his  property  had  only  been  taxed  at  its  true 
value,  and  Justice  Miller  said:  "Whatever  may  be  the  cause, 
when  it  is  recognized  as  a  source  of  manifest  injustice  to  a  large 
class  of  property,  around  which  the  Constitution  of  the  State 
has  thrown  the  protection  of  uniformity  of  taxation  and  equality 
of  burden,  the  rule  must  be  held  void  and  the  injury  must  be 
remedied. 

Judge  Taft  referred  also  to  the  case  of  the  C.  B.  &  <c>.  R.  R. 
Co.  vs.  Board  of  Commissioners,  of  Atchison  Co.,  54  Kansas, 
781,  where  the  general  property  was  assessed  a1  25  per  cent  of 
the  true  value,  while  railroad  property  was  assessed  full  value. 
The  Constitution  of  Kansas  required  uniformity  and  equality 
in  taxation,  and  the  Legislature  provided  thai  all  property  should 
be  assessed  a1  its  true  value.  The  Supreme  Court  of  Kansas  said: 
'•This  unequal  valuation  was  not  the  result  of  an  accidental 
omission  of  property  Erom  the  assessment  list,  or  an  accidental 

valuation  of   property   at    more  or  less  than   its  true  value.     The 

state  Board  of  Railroad  Assessors  valued  the  railroad  property 

in   Atchison  County,  for  taxation,  at   its  true  value;    but   the  city 

and  township  of  that  comity  i  d  all  the  other  prop- 

erty of  the  county  at  25  per  cenl  of  its  true  value.  Tims,  by 
concerted  action,  the  statute  of  the  State  was  flagrantly  disre- 
garded. .  .  .  There  has  been  gross  discrimination  in  the  taxa- 
tion of  the  railroad  property.  The  law  has  not  been  observed. 
The  taxes  complained  of  are  not  equal  and  uniform." 

The  foregoing  are  extracts  Prom  the  opinion  of  Judge 
Taft,  afterward  President  Taft.  in  the  case  of  Taylor  vs. 
Louisville,  reported  in  ss  rVderal  Reporter,  page  350. 

It  will  not  be  denied  by  anybody  that  under  the  Con- 
stitution of  Illinois,  which  requires  equality  and  uniform- 
ity in  taxation,  it  Is  your  duty  to  equalize  the  full  value 
per  mil*'  that  you  believe  any  railroad  to  be  worth,  upon 

18 


any  theory  that  you  may  adopt,  with  the  ratio  of  assess- 
ment to  full  value  that  prevails  in  the  assessment  of  the 
general  property.  What  is  that  ratio,  or  proportion, 
between  the  valuations  for  tax  assessments  and  the  mar- 
ket, or  selling,  value  of  the  general  property? 

That  is  a  question  of  fact,  and  no  one  will  ask  you  to 
take  anything  as  a  fact  that  is  not  supported  by  evidence. 
Whose  duty  was  it  to  procure  and  to  lay  before  you  sat- 
isfactory evidence  on  this  important  point?  It  was  not 
the  duty  of  the  railroad  companies;  it  was  the  duty  of 
the  State.  Why  did  not  some  of  our  State  officials, 
instead  of  denouncing  you  on  the  stump,  before  you  had 
even  organized,  or  had  a  chance  to  perform  an  official  act, 
procure  for  you  some  evidence  to  guide  you  in  this 
matter  ? 

The  Railway  Tax  Men's  Association,  through  Mr. 
Crandon,  its  President,  has  secured  this  evidence  at  its 
own  expense.  A  circular  letter  was  sent  to  the  county 
clerk  of  every  county  in  the  State,  asking  him  to  prepare 
a  statement  showing  actual  transfers  of  farm  land  and 
city  land  in  his  county  during  the  past  year,  giving  town- 
ship, description  of  land,  name  of  seller  and  buyer,  actual 
consideration  paid  in  money;  and  opposite  to  this,  the 
full  valuation  of  the  same  land  by  the  assessor,  for  taxa- 
tion. I  have  here  now,  upon  the  table  before  me,  these 
returns  from  more  than  half  of  the  counties  in  the  State. 
They  are  in  your  own  districts,  and  your  own  counties, 
and  they  are  here  for  your  examination  and  criticism. 
Scattered,  as  they  are,  all  over  the  State,  and  prepared, 
as  they  necessarily  were,  without  the  possibility  of  the 
officials  of  one  county  knowing  what  any  other  county 
would  show,  their  complete  corroboration  of  one  another 
amounts  to  a  positive  conviction  of  their  reliability.  If 
that  is  not  good  evidence,  where  will  you  get  good  evi- 
dence '! 

Here  is  a  clipping  from  the  Peoria  Star,  commenting 
upon  an  editorial  from  the  Lewistown  Record,  showing 
the  fair  and  impartial  way  in  which  this  information  was 
sought  for,  and  was  secured,  from  your  own  county  offi- 
cials, and  certified  to  under  their  seal.  This  editorial 
says : 

19 


The  county  clerk  was  requested  to  look  over  the  records  and 
secure  information  on  twenty  pieces  of  farm  lands  and  twenty 
town  lots  that  had  recently  changed  hands.  Blanks  were  sup- 
plied for  lands  and  another  for  lots.  On  the  blank  appears  the 
name  of  the  township  in  which  the  property  is  located,  the  name 
of  purchaser,  the  date  of  the  transfer,  the  actual  consideration 
as  appears  in  the  instrument  and  the  full  value  of  the  land  as  it 
was  assessed.  In  the  last  column  is  a  space  where  is  shown  what 
per  cent  the  assessed  value  is  of  the  sale  value. 

In  getting  this  information  the  clerk  used  only  such  prop- 
erty as  appeared  to  have  been  sold  for  cash  and  where  no  trade 
entered  into  the  deal.  The  same  was  true  of  town  lots.  In  order 
to  get  a  general  average  the  land  records  were  searched  and  lands 
selected  from  various  townships.  On  the  twenty  pieces  of  farm 
lands  it  was  found  what  the  consideration  was  in  the  sale  and 
on  the  same  lands  the  tax  books  were  consulted  to  learn  what  the 
land  was  assessed  at  by  the  assessors.  On  the  twenty  pieces  of 
farm  lands  it  was  found  that  the  assessed  value  was  between  41 
and  42  per  cent  of  the  sale  value  as  shown  in  the  consideration 
in  the  deeds.  On  lots  the  per  cent  increases,  showing  the  lots 
were  assessed  between  53  and  54  per  cent  of  what  the  real  con- 
sideration was  as  shown  in  the  deeds.  To  arrive  at  these  figures 
the  average  was  taken  on  all  the  lands  and  all  of  the  lots. 

These  returns,  from  all  over  the  State,  show  that,  tak- 
ing every  county  in  the  State,  the  average  full  valuation 
of  farm  lands  for  taxation  is  to-day  less  than  43  per  cent 
of  their  cash  selling  value  and  salable  value,  and,  there- 
fore of  their  actual  market  value,  and  of  city  lots  and 
lands  it  is  less  than  55  per  cent. 

But  the  real  estate  is  only  half  of  the  property  in  this 
State.  It  has  long  been  the  opinion  and  the  best  judg- 
ment of  students  and  all  those  best  qualified,  that  in  a 
State  like  Illinois,  with  great  cities,  a  commercial  and 
manufacturing  State,  with  enormous  banking  resources, 
the  personal  property  as  a  whole  equals,  if  it  does  not 
exceed,  the  land  in  actual  or  commercial  value. 

But  what  about  the  assessment  of  personal  property? 
It  is  my  recollection  that  while  the  land  assessment  aggre- 
gates about  $1,650,000,000,  the  entire  personal  property 
assessment  in  the  State  is  only  $471,000,000  —  that  is, 
about  one-fourth  of  the  land  assessment. 

I  have  already  talked  too  long  to  go  into  details  of  the 
assessment  of  personal  property,  but  I  believe  that  it  is 
not  seriously  claimed  that,  taking  it  as  a  whole,  the  full 

20 


valuation  of  personalty  for  taxation  is  25  per  cent  of  i  t  - 
market  or  commercial  value. 

These  facts  of  the  under-assessment,  and  the  omission 
from  assessment,  are  not  the  result  of  accidental  omis- 
sions, or  accidental  valuations;  they  are  intentional  and 
systematic,  and  are  the  result  of  the  recognized  and  uni- 
versal custom  among  assessors  in  this  State.  In  the  per- 
formance of  your  duty  you  can  not  ignore  them. 

We  have  placed  the  evidence  before  you.  If  railroad 
property  is  to  receive  the  equal  protection  of  the  law,  then 
it  is  your  duty,  as  the  only  tribunal  having  authority  to 
make  an  assessment  of  railroad  property,  to  give  to  this 
class  of  property,  for  the  tax  valuation,  the  same  per 
cent,  as  near  as  you  reasonably  can,  of  full  value,  that 
you  believe  prevails  in  the  valuation  of  other  property. 

I  am  sometimes  asked  whether  1  regard  this  well- 
understood  practice  among  assessors  as  good  for  the 
State,  and  if  not,  why  the  power  of  assessment  should  not 
be  taken  from  them,  and  placed  in  the  hands  of  a  small, 
compact,  select  Commission,  to  be  appointed  by  the  Gov- 
ernor, and,  incidentally,  that  your  tribunal,  the  State 
Board  of  Equalization,  shall  be  abolished. 

This  practice  of  organized  under-valuation  does  result 
in  a  discrimination  as  between  counties,  regarding  tli" 
State  tax,  but  that  is  an  insignificant  part  of  the  total 
taxes.  The  greater  part  of  the  taxes  collected  are  for 
purely  local  purposes  —  school  taxes,  road  taxes,  county 
taxes ;  and  in  cities,  taxes  for  police  and  fire  protection, 
and  the  like.  As  to  all  these  taxes,  it  is  a  matter  of  purely 
local  concern,  in  which  the  State,  as  such,  is  not  interested, 
and  in  which  no  other  county  or  community  is  interested. 

If  the  people,  for  their  own  protection,  prefer  to  adopt 
a  system  of  low  valuations  and  high  rates,  rather  than 
high  valuations  and  low  rates,  whose  business  is  it  except 
their  own  ? 

I  say,  for  their  own  protection,  because  I  am  entirely 
persuaded  that  it  is  a  most  efficient  method  for  preventing 
excessive  taxation,  as  the  people  of  Illinois  will  realize 
if  they  abandon  the  control  of  their  taxes  to  a  centralized 

21 


bureau,  such  as  a  certain  worthy  class  of  reformers  is 
demanding. 

Let  me  read  to  you  one  or  two  things  from  some  recent 
editorials  in  Wisconsin  newspapers,  showing  what  is 
going  on  there.  I  think  I  will  just  incorporate  them  in  my 
remarks : 

A  STATE'S  BANKRUPTCY. 

We  are  told  that  the  enormous  increase  in  the  assessed  valua- 
tion of  property  in  this  State  does  not  imply  higher  taxes.  But 
wait!  Let  not  the  matter  be  argued,  says  the  Madison  Demo- 
crat. Taxes  will  and  must  be  higher  and  the  way  is  paved  by 
the  enormous  increase  which  the  tax  commission  has  announced. 
This  increase  amounts  to  about  $159,000,000  over  the  assessment 
of  a  year  ago.  It  is  true  that  the  rate  has  no  bearing  upon  the 
assessed  valuation  or  vice  versa,  yet  we  are  to  have  a  huge 
increase  in  taxes  just  the  same.  An  annual  expenditure  for  the 
new  two  years  in  State  government  of  some  $18,000,000  must  be 
met  by  taxation.  It  does  not  make  any  difference  whether  it 
comes  partially  from  corporation  licenses  or  not.  That  is  taxa- 
tion, and  the  people  pay  the  whole  bill. 

State  Treasurer  Henry  Johnson  is  a  public  official  not  given 
to  playing  politics.  During  the  legislative  session  he  sounded  a 
serious  warning  to  his  brethren  that  they  were  running  wild 
with  appropriations  and  making  no  adequate  provision  for  meet- 
ing them,  and  again  latterly  he  has  frankly  proclaimed  the  prac- 
tical bankruptcy  of  the  State  which  must  prevail  from  about 
November  until  March.  The  fact  of  the  matter  is,  despite  expert 
fallacies  to  the  contrary,  taxes  in  Wisconsin  are  ascending  at  a 
fearful  rate  and  concurrent  with  a  reform  which  largely  is  rep- 
resented by  a  multiplicity  of  commissions  which  do  nothing  so 
certainly  as  add  to  the  complexity  and  cost  of  government. — 
Beloit  Free  Press. 

WISCONSIN'S  TAX  BURDEN. 

In  his  weekly  syndicate  letter  to  the  interior  newspapers, 
Ellis  B.  Usher  calls  attention  to  the  fact  that  the  appropriations 
voted  by  the  Legislature  of  Wisconsin,  which  has  recently 
adjourned,  amounted  to  $36,298,030,  while  those  of  the  Illinois 
Legislature  totaled  $36,870,000.  To  get  the  full  force  of  this  com- 
parison it  is  necessary  to  compare  the  populations  of  the  two 
States  —  Illinois,  according  to  the  last  census,  5,638,591 ;  Wis- 
consin, according  to  the  last  census,  2,333,860.  Wisconsin,  with 
about  a  million  less  than  half  the  population  of  Illinois,  is  under- 
taking to  spend  as  much  as  Illinois  spends.  The  money  spent 
by  the  States  must  be  raised  by  taxation.  Wisconsin  necessarily 
is  a  competitor  with  Illinois.  How  can  she  better  herself  by 
putting  a  taxation  handicap  upon  her  citizens  ? 

22 


Like  the  Illinois  appropriations,  those  of  Wisconsin  are  for 
two  years,  which  means  that  the  expenditures  authorized  by  the 
last  Wisconsin  Legislature  are  to  proceed  at  the  rate  of  eighteen 
million  per  annum,  or  a  million  and  ;i  half  a  mouth.  Yesterday 
there  was  in  these  columns  a  reference  to  the  declaration  of  State 
Treasurer  Johnson  that  at  the  rate  of  present  expenditures  of 
State  moneys  in  Wisconsin,  which  he  computed  at  a  million  a 
month,  there  will  be  nothing  left  in  the  treasury  by  the  middle 
of  October.  Think  of  the  embarrassment  that  will  occur  later, 
when  the  full  burden  of  the.  new  appropriations  must  be  borne. 
And  if  the  treasury  at  that  time  fails  to  meet  the  strain,  think 
of  what  will  happen  to  Wisconsin's  financial  credit. 

Mr.  Usher  figures  out  the  per  capita  tax  necessary  here  to  meet 
the  expenditures  authorized  by  existing  laws  and  finds  that  it  is 
$7.50,  while  the  Illinois  expenditures  will  require  a  levy  of  only 
$3.27  per  capita.  The  Wisconsin  expenditures  will  average  not 
the  million  a  month  which  is  worrying  State  Treasurer  Johnson, 
but  half  as  much  again.  They  must  be  met,  however  much  tax- 
payers would  like  to  avoid  them. 

Wisconsin's  tax  burden  is  growing  desperate. —  Evening  Wis- 
consin. 

It  may  be  there  is  some  citizen  and  taxpayer  of  Illi- 
nois who  would  prefer  to  pay  taxes  at  the  rate  of  $7.50 
per  capita,  as  the  Wisconsin  man  is  taxed,  rather  than  at 
the  rate  of  $3.27,  as  he  is  himself  now  taxed.  Such  a 
citizen  might  favor  a  Permanent  Tax  Commission,  with  a 
large  increase  in  property  valuations,  but  he  probably 
does  not  own  very  much  of  anything. 

The  wholesale  omissions  of  personal  property  from 
the  assessment  rolls  are  bad.  They  are  largely  in  cities, 
and  consist  chiefly  of  moneys  and  credits,  bonds  and 
stocks  of  corporations  and  manufactured  products  in 
factories,  and  merchandise  in  stores. 

They  embrace  nearly  everything  that  can  be  hid.  If  I 
were  framing  a  law  I  would  reach  this  class  of  property 
with  a  moderate  State  income  tax  with  a  very  small 
exemption,  and  so  framed  as  not  to  touch  farms  or  rail- 
roads or  any  other  class  of  property  where  it  might  result 
in  double  taxation. 

In  saying  these  things  I  am  going  a  little  outside  of  the 
matter  in  hand,  to  answer  some  questions  that  have  been 
asked  me  along  this  line.  It  is  not  for  railroad  repre- 
sentatives to  suggest  what  methods  the  people  of  this 

23 


3  0112  062003428 


State  shall  adopt  for  taxing  their  own  property,  but  as 
long  as  property  is  the  basis  of  taxation,  and  as  long  as 
your  Constitution  remains  as  it  is,  then  it  is  the  legal  and 
moral  right  of  the  owners  of  railroad  property  to  be 
assessed  by  methods  which  insure  to  them  substantial 
equality  with  the  other  property  in  the  imposition  of  tax 
burdens. 

We  shall  not,  in  my  opinion,  be  accorded  such  equality, 
if  you  apply  to  our  valuation,  for  equalization  purposes, 
a  percentage  of  more  than  50  per  cent. 

All  that  we  ask  is  fair  treatment.  The  valuation  of  the 
railroads  should  not  be  guessed  at,  but  should  be  found 
and  determined  upon  such  equitable  rules  for  ascertain- 
ing value  as  your  united  judgment  may  approve,  and  that 
you  may  find  applicable  to  this  particular  class  of  prop- 
erty. Then,  you  must  equalize  it  with  other  property. 
More  than  this,  we  do  not  expect:  less  protection  than 
this  it  would  be  poor  policy  for  you,  representatives 
of  a  fair-minded  people,  to  extend  to  this  important 
industry. 


24 


